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Energy stocks, miners drag FTSE down; mood sours

Published 06/08/2009, 04:16 AM
Updated 06/08/2009, 04:24 AM
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* Energy stocks, miners slide on weaker commodity prices * Banks weaker, Barclays BGI sale weighs

* Political uncertainty dents sentiment

By Simon Falush

LONDON, June 8 (Reuters) - Britain's leading share index fell 1.2 percent early on Monday, dragged lower by weakness in energy and mining stocks, pressured by softer commodity prices, while banks also fell as sentiment ebbed.

By 0803 GMT the FTSE 100 was down 66.19 points at 4,372.37 after closing 51.62 points, or 1.2 percent, higher at 4,438.56 on Friday buoyed by U.S. non-farm payrolls data.

The index is up nearly 27 percent since slumping to a six-year trough in March but lingering doubts about prospects for a speedy return to growth, have led to renewed weakness in equities.

"It's a lacklustre start to the week and I think there's an element of tiredness after the fantastic run upwards from early March," said Keith Bowman, equity analyst at Hargreaves Lansdown.

BP, Royal Dutch Shell, BG Group, Tullow Oil and Cairn Energy fell between 0.7 and 1.7 percent.

Rio Tinto, Kazakhmys, Eurasian Natural Resources, Anglo American, Lonmin and BHP Billiton fell between 2.5 and 3.7 percent as commodity prices retreated, hit by a strengthening dollar.

The political situation is also adding to negative sentiment for the market.

British Prime Minister Gordon Brown came under more pressure after damaging European election results, adding to his woes after six senior government ministers quit the government last week.

However it is the fact that he looks to have ridden out the crisis that is hurting sentiment, some analysts said.

"The fact that it now does not look likely that we will get an early election and possibly a change of government is casting a shadow over the market," Bowman at Hargreaves Lansdown said.

Barclays fell 2.4 percent after it said it is in talks to sell Barclays Global Investors, with U.S. fund manager, BlackRock the front runner according to people familiar with the matter.

Lloyds Banking Group was among the heaviest fallers, down 3.3 percent after it said it had raised just under 3.5 billion pounds from shareholders which it will use to pay back some of the money injected by the British government last year.

Other banks were also weaker. HSBC, Standard Chartered, Royal Bank of Scotland fell 0.4-1.4 percent.

Despite the more gloomy mood in the market, further evidence pointed to an improving economic outlook.

The recession in Britain is over for now, a slim majority of economists said in a poll published by the Financial Times on Monday.

Britain's businesses feel more confident about their prospects than at any other time in the past 12 months, Lloyds Banking Group's monthly "Business Barometer" shows, providing further evidence of improving sentiment in the economy as the slowdown at least bottoms out, the Independent said.

Thomas Cook Group was one of just a handful of stocks in positive territory, up 2.2 percent, after a German government source said officials will decide whether to grant Arcandor, which owns a majority stake in the company, a loan from state-owned bank KfW.

Goldman Sachs also raised its rating for Thomas Cook to "neutral" from "sell".

Rolls Royce was the top FTSE 100 gainer, up 1.5 percent after Goldman raised its rating to "neutral" from "sell" in an European Aerospace and Defence review.

Cobham was a big blue-chip faller, down 4.5 percent after Goldman reduced its rating to "sell" from "neutral".

(Reporting by Simon Falush; Editing by Erica Billingham)

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